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The Stimulus Package Won't Work Part 3: The Congressional Budget Office Study

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January 27, 2009 – Comments (13)

This is now my third post in the past two weeks on how terribly ineffective the government stimulus package that is supposed to be our salvation will likely be. 

In post one, The myth of the coming infrastructure boom, I determined that only around 17% of the total $825 billion package will be spent on actual infrastructure projects. 

In post two, The more I look at the stimulus package, the less I like it, I dug deeper into how much of the money would be spent on entrenched politicians' pet projects rather than on useful things that would actually create permanent jobs and help make America better and more efficient. 

I also touched upon how a huge chunk of the spending will once again come in the form of a one-time $500 kickback to some taxpayers, despite the fact that the previous round of checks that the government sent out last year did little to actually stimulate the economy.

This brings us to post three, The Congressional Budget Office Study.  The CBO published a report today detailing when the stimulus money will actually get spent.  According to the CBO, 64% of the package will be spent in 2009 and 2010.  Well, that's not terrible I guess...but wait, a significant chunk of that is the stupid $500 tax credits that people probably won't even spend.

After the tax credits are backed out, only half (52%) of the money in the plan will be put to work over the next two years, supposedly 15% in 2009 and 37% in 2010.  Hmmmm, that's a lot smaller than I thought it would be, but at least it's something.  Well, it's worse than that because I doubt that it backs out things like the $87 billion is for a temporary increase in the Medicade matching rate, $43 billion for increased unemployment benefits, $39 billion in healthcare for newly unemployed workers, $20 billion for food stamps.  All of these things are nice and they help people who are in need, but they do almost nothing to stimulate the economy.  Also, it probably includes $79 billion in state fiscal relief that is probably merely replacing money that the states have spent in the past but can no longer afford.

Much of the money that is actually going to be spent on infrastructure projects won't be spent for years.  The CBO said that provisions to increase energy efficiency and renewable energy use would ultimately be spent within seven years.  It also estimated that would take five years to spend 85% of the money dedicated to highway and other infrastructure projects.  Keep in mind that this is the government's own estimate as to how quickly the plan will be implemented, which is likely very overoptimistic.

The CBO report even specifically states that "congressional authorizations for sharp increases in spending have typically been followed by a noticeable lag in actual spending."  No Ship Sherlock.  The government is a large, inefficient beast.  This plan isn't going to be nearly as simulative for the economy as many would like us to believe. 

We need to put people to work by creating permanent jobs that help benefit American for years to come.  Things like the improvement of the power grid and improving mass transit.  We need to make things and shift our energy consumption to domestic sources and we need to do it ASAP.  Think how much better off the economy would be if you could purchase a plug-in electric vehicle manufactured by a domestic company and plug it into the wall to recharge it with electricity generated by a domestic resource like natural gas, nuclear power, wind, solar...whatever anything that doesn't ship money and jobs to the Middle East and manufacturing jobs to Japan.  This is just a hypothetical example of something that would benefit the economy for the long run and create permanent jobs.

I am far from a protectionist.  I want a global economy with free trade.  Idiotic protectionist tariffs made the Great Depression worse.  I just want America to actually produce stuff that other people want.  The problem with this country is we spent all of our time and resources creating money out of thin air using leverage and smoke and mirrors or serving each other lattes.  America needs to produce actual stuff in order to get back on our feet.  The government can spend money wisely to steer us down that path...or it can continue to piss away the tax revenue of future generations on short term Band-Aids that don't solve our problems.

As Indiana Representative Mike Pence put it the current version of the bill "won't stimulate anything except more government and more debt."  The long-term cost of this huge, wasteful package could balloon to $1.2 trillion over the next ten years.  It might help the economy a little, but it won't be nearly as effective as many investment advisors and many in the media would like us to believe and the cost to us and future generations will be astronomical. 

I like Obama and I think that he is the right man for the job, but I remain extremely unimpressed with the stimulus package that he is pushing right now.  The government needs to either spend our money wisely or not spend it at all.

Deej

13 Comments – Post Your Own

#1) On January 27, 2009 at 4:35 PM, bdash (27.40) wrote:

its based off of the same theory as TARP: spend the money, it doesn't matter where and it will work its way into the system. Its a nice theory but a solution in the billions wont fix a problem in the trillions. especially if its released slowly and in a money sucking, not moving fashion.

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#2) On January 27, 2009 at 5:20 PM, columbia1 wrote:

Your cartoon choice was worth a "rec" all by itself!!

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#3) On January 27, 2009 at 5:46 PM, outoffocus (23.22) wrote:

I think the government wouldnt be doing so much if the people didnt expect them to do so much.  What if the people just wanted the government to stay out of it? Wouldn't that be great? What if the only involvement the government had in this crisis involved going after the people who caused it? Sounds like utopia right?

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#4) On January 27, 2009 at 5:50 PM, StKitt (29.98) wrote:

"I just want America to actually produce stuff that other people want.  The problem with this country is we spent all of our time and resources creating money out of thin air using leverage and smoke and mirrors or serving each other lattes.  America needs to produce actual stuff in order to get back on our feet."

I couldn't agree more with your desire in this regard. But how many years do you think it will take to convert America back to a predominantly industrial/manufacturing economy? After a major, worldwide depression, which is where we're probably headed, I would guess twenty-five to fifty years (barring another world war). Facing such a prospect, the CBO's estimate of a five- to seven-year recovery initiative (which may run beyond $1.2 trillion) doesn't seem like such a horrible gamble. America's economy will likely come out of the hole before anyone else's and that may be the opportunity you're longing for to get industry and manufacturing re-established here... with less costly labor and, hopefully, some improved infrastructure to help them along.

For now, though, the world's foot is caught in the trap. And a short-term fix to the pickle we're in seems implausible, if not impossible.

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#5) On January 27, 2009 at 10:08 PM, threepaweddog (28.63) wrote:

Interesting series of posts, but I think you are largely basing your analysis for this last one on a very flawed and biased WSJ op-ed (surprise!).  The original CBO analysis the WSJ is drawing some of its numbers from was only on Division A of the stimulus package, the appropriations part of the bill -- the supposedly "shovel-ready" parts of the bill.  However the tax provisions are in Division B of H.R.1.  By my calculations, 64.4% or $525.5B of the $815.8B bill will be spent or given as tax credits before October 1, 2010.  And many of the complex shovel ready jobs take more than 20 months to complete, accounting for much of the remaining budget.  Division A (the infrastructure part) spending from FY2011-2019 amounts to 26% of the budget.  Of the remaining 10% of the bill's budget, a chunk of that is the incentive program for health IT improvement, something the country desperately needs. 

http://cboblog.cbo.gov/?p=199 

http://www.cbo.gov/ftpdocs/99xx/doc9968/hr1.pdf

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#6) On January 27, 2009 at 10:36 PM, rickShide (< 20) wrote:

PolitiFact | Cantor distorts CBO data on stimulus package

In the debate over how best to provide economic stimulus, put U.S. Rep. Eric Cantor, the Republican Whip, in the camp that thinks more tax cuts and less government spending is the way to go.

Fair enough. But in a Jan. 21, 2009, interview on Fox News, Cantor cited a recent report from the Congressional Budget Office to back up his argument.

"We have a list of ideas very focused on small businesses, the self-employed, entrepreneurs and families, because we believe very much you provide tax relief to those individuals that we will see an economy that bounces back," Cantor said.

"Unfortunately, here on the Hill, what we're seeing now is the congressional Democrats proposed massive amounts of spending; that in fact today the Congressional Budget Office came out with a report -- said that it's just not stimulus. It won't help the economy grow."


That seemed odd, given that the CBO is supposed to be an objective, nonpartisan fiscal research arm for Congress. So we decided to check it out.

What Cantor cited is not so much a CBO report as a data run projecting how much of the proposed $355 billion stimulus money proposed by House Democrats for infrastructure projects like bridge, highway or school construction and other "discretionary" spending would be going out the door in any given year. Because while House Speaker Nancy Pelosi talks about "shovel ready" projects, the reality is many of the proposed projects would take time to get off the ground.

The CBO analysis found that about $136 billion of the $355 billion total would be spent in fiscal years 2009 and 2010 (remember, we are already 4-1/2 months into the 2009 fiscal year). So that means only about a third would be spent this year and next.

By the end of the 2011 fiscal year, about 70 percent of the money would be spent.


When we called Cantor's office, they made the point that the CBO data shows that the proposed spending by the Democrats wouldn't be spent fast enough to quickly stimulate the faltering economy. They note that a previous CBO report projected a marked contraction in the U.S. economy in 2009 will be followed by a slow recovery in 2010. Therefore, Cantor and other Republicans have argued, the bulk of the infrastructure spending wouldn't kick in until we are already well out of a recession.

"If most of the plan won't be spent before 2011, what help is that to the economy now?" said Cantor spokesman Brad Dayspring. Therefore, he said, it's fair to extrapolate from the data that the Democrats' plan won't help the economy.


A few caveats to the CBO spending analysis are in order.


First, as Cantor acknowledged later in the Fox interview, the CBO analysis referenced by Cantor only looked at so-called discretionary spending, not the entire $825 billion stimulus package proposed by House leaders. Among the spending not analyzed is a proposed $275 billion in tax cuts and nearly $200 billion for jobless benefits - both of which are expected by some to jumpstart the economy more quickly than infrastructure projects.


Second, the CBO data is based on an already outdated version of the proposed stimulus package.


Last, and perhaps most important, the 3-page CBO data sheets makes absolutely no qualitative conclusions about whether infrastructure spending will stimulate the economy, or whether it will or won't help the economy to grow. It projects when the money would be spent, period.


There is sure to be heated debate between Democrats and Republicans in the coming weeks about spending versus tax cuts in the proposed stimulus package, and which would create more jobs, more quickly.

If Cantor's point is that Democrats have been too optimistic in how quickly they can create jobs through infrastructure projects, the CBO data gives a bit of ammunition to suggest that such projects will likely take several years to unfold. But the way Cantor said it suggests that the nonpartisan and well-regarded CBO had come out with a report that said the opposition party's proposal wouldn't work. That's a serious distortion of three pages of data that simply laid out a likely timeline of spending.

Yes, coupled with other data, it is possible to make an argument that the proposed infrastructure spending won't provide an urgently needed boost to the ecomony, but that's not an argument the CBO weighs in on one way or another. And Cantor's suggestion that it does is False.

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#7) On January 28, 2009 at 3:03 AM, DaretothREdux (42.17) wrote:

The government can spend money wisely

When I read that I laughed so hard I pissed myself...

Give me an example from the past please? One example would be nice...

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#8) On January 28, 2009 at 7:39 AM, TMFDeej (99.32) wrote:

Thanks for reading everyone.  I actually wrote this entire series of posts before stumbling across the WSJ article.  I provided a link to it because it provides similar arguments to the ones that I came up with, but most of the data that I obtained on the CBO study came from CNN / Money or Bloomberg.  I did not use any of the statistics from the WSJ piece, which I realize often slants to the right now that Mr. Fox is involved

The second post in the series about all of the pork in the bill was actually from the NYT, which I believe usually slants more to the left.

Deej

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#9) On January 28, 2009 at 3:43 PM, DemonDoug (78.22) wrote:

The NYT slants to the left the same way a perfectly level table does: only in relation to the extremely right slanted publications. (When you're tilted to the right, everything looks like it's leaning left.)

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#10) On January 29, 2009 at 2:57 PM, wadeonin (< 20) wrote:

on face value it appears the whole stimulus package is election paybacks. very little substance just spending. this should trouble anyone, democrat or republican. how can they look at us in the eye and call this so called stimulus package good for the average worker or business. politicians in washington have hit a new low. next election throughout all with the wash.

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#11) On January 30, 2009 at 2:37 PM, guiron (21.82) wrote:

This is not the final package. What comes out of the Senate will be different, and then it will go to committee, where it will change again, probably many times, and it's very likely that this will not be the last package. It's too early to pick this apart, yet. Wait until the Senate takes it up, and then the debate will be relevant.

In the meantime, the only solution that Republicans have is to cut taxes, although we've certainly been doing that for the last eight years already. Apparently to one type of thinking the only economic tool worth considering is cutting taxes, which is the same as spending on a balance sheet. But when all you have is a hammer, every problem looks like a nail. 

 

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#12) On January 30, 2009 at 2:40 PM, guiron (21.82) wrote:

I think the government wouldnt be doing so much if the people didnt expect them to do so much.  What if the people just wanted the government to stay out of it? Wouldn't that be great? What if the only involvement the government had in this crisis involved going after the people who caused it? Sounds like utopia right?

I believe Hoover already tried that. 

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#13) On January 30, 2009 at 2:50 PM, guiron (21.82) wrote:

Give me an example from the past please? One example would be nice...

Have you ever used the freeway system? The Internet? Are you going to take any drugs in the future which benefit from genetics/biotech? Do you watch television? Do you like the street lights to work at night? Do you prefer your drinking water free from contaminants?

All these things required government spending, and some are entirely government driven. 

If you don't care, there are plenty of places which have much less taxes, but much less of these things, too. I'd be interested if you can name a place where there are little to no taxes and a working economy with a strong middle class.

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